IBC | Tax & Customs Dues To Be Paid As Per Waterfall Mechanism Under Section 53 : Supreme Court

The Supreme Court Bench comprising Justice Sanjiv Khanna and Justice S.V.N. Bhatti, has clarified that the dues of the Central Board of Indirect Taxes & Customs, Department of Revenue, will be paid as per the waterfall mechanism given under Section 53 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Section 53 of IBC provides the order of priority in which proceeds from sale of liquidation assets is to be distributed amongst Corporate Debtor’s creditors, stakeholders etc.

The insolvency resolution process costs have to be paid first in priority, followed by dues of Secured Creditors and workmen dues upto 24 months preceding Liquidation Commencement Date. Thereafter, the dues of employees (other than workmen) upto 12 months preceding Liquidation Commencement Date have to be paid. The next in priority is Financial Creditors (unsecured creditors), followed by dues of Central Government & State Government upto 2 years preceding Liquidation Commencement Date. Any remaining debt and dues, preference shareholders and Equity have been placed at bottom of priority list.

BACKGROUND FACTS

KVK Nilachal Power Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) under IBC by the National Company Law Tribunal (“NCLT”).

Thereafter, the NCLT ordered Liquidation of the Corporate Debtor. The Liquidator conducted e-auction for sale of the Corporate Debtor as a going concern. The Successful Bidder of the e-auction filed an application before the NCLT seeking certain concessions, reliefs and waivers. One of the reliefs sought before the NCLT was waiver of all custom duty liabilities under any benefits availed under mega power policies. On 01.12.2022, the NCLT directed the Successful Bidder to approach the concerned authority in this regard.

The Principal Commissioner of Customs (“Appellant”) filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”) against the NCLT order dated 01.12.2022. The NCLAT dismissed the appeal for being barred by limitation in view of Section 61 of IBC. The Appellant filed an appeal before the Supreme Court against the NCLAT’s order of dismissal.

SUPREME COURT VERDICT

The Bench took note that limitation was one of the issues before it.

The Bench disposed of the appeal with the clarification that the dues of the Central Board of Indirect Taxes & Customs, Department of Revenue, will be paid as per the waterfall mechanism given under Section 53 of IBC.

“On the other hand, we can dispose of the appeal with the clarification that the dues of the Central Board of Indirect Taxes & Customs, Department of Revenue will be paid as per the waterfall stipulated under Section 53 of the Insolvency and Bankruptcy Code, 2016.”

The appeal has been disposed of.

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Case Title: Principal Commissioner of Customs V Rajendra Prasad Tak & Ors.

Citation: 2023 LiveLaw (SC) 952

Counsel for Appellant: Mr. N. Venkatraman (A.S.G.), Mr. Mukesh Kumar Maroria, AOR, Mr. V.C. Bharathi, Mr. Bansuri Swaraj, Mr. Sarthak Karol and Mr. Siddharth Sinha.

Counsel for Respondents: Mr. Neeraj Kishan Kaul (Sr. Adv.), Mr. Nakul Dewan (Sr. Adv.), Mr. Rahul Jain, Mr. Anirudh Bhat, Ms. Lalit Mohini Bhat, Mr. Siddarth Agarwal, Mr. Ira Mahajan, Mr. Nil Chatterjee, Mr. Satendra Saharan, Ms. Hetu Arora Sethi, AOR.

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